Weighing the perils of traditional crowdfunding to open restaurants

In 2014Fifi Bell Clanton and Gwendolyn Niles needed $25,000 for an exhaust system and other finishing touches for their Crabby Shack in Crown Heights. They turned to Kickstarter to raise those final funds and got the financial support they needed. Niles said those donors didn't support them purely for the gifts like free food or drinks or swag, but rather because they wanted "to be part of our success story. And they helped spread the word about the restaurant."

Restaurants have regularly used crowdfunding to obtain the small amounts of money needed to make it to opening night, but they've learned its limits.

There are plenty of success stories.

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Luis Arce Mota and Alex Valencia needed just $11,000 for a grease trap and other final touches for their Lower East Side restaurant, La Contenta, as it opened in 2014. They offered rewards ranging from free drinks and appetizers to a cooking class.

"We just needed a little push," Valencia said. They raised the money from 30 investors, including one who gave more than $4,400 to receive two private parties with live music. The pair has expanded to a second location and is readying a third. "We're very grateful to Kickstarter," Valencia added.

Seeking bigger sums has proved more problematic. Carla Hall's Southern Kitchen opened in Brooklyn in 2016 with more than $250,000 worth of Kickstarter money. The restaurant closed soon after for a variety of reasons. But at a restaurant industry conference in 2017, Hall—a celebrity chef featured on Top Chef and The Chew—said using Kickstarter "is really what ultimately led to our downfall."

She said donors did not understand why it took nearly two years to open the doors (and longer until their rewards were fulfilled). "People don't know that it takes time," she said during her speech at the conference. "They don't know how much things cost." On social media, she was attacked for soliciting donations, though she is a celebrity, and people questioned where their money had gone. (Hall did not respond to recent emails.)

Niles said that when she and Bell Canton opened their second Crabby Shack in Clinton Hill last year, they stuck with traditional investors because the idea of seeking donations after becoming successful made her "uncomfortable with going back to Kickstarter."

As they plan a third location, Bell Clanton said they might turn to regulated crowdfunding. "It's easier asking for an investment after restaurant No. 1," Bell Clanton said. "Now we know we're going to be successful, so we can give you a return on your money."

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